The Honourable Murray Gleeson AC

Statutory Interpretation

carrying on a business for the purpose of gaining or producing assessable income. This raises a question of interpretation the answer to which we now take for granted. But both the question and the answer are fundamental. The meaning of “necessarily” varies according to context. Sometimes it means “unavoidably”. In a given context, to describe an expense as necessary may mean that it was essential or unavoidable. In the context of the Acts, its meaning is different. The reason for this goes to the essence of income tax law. The revenue authorities do not tell a taxpayer how to run a business. A business expense incurred as a matter of fact and law does not cease to be an allowable deduction because a more efficient operation would have avoided, or reduced, the expense. The expense does not have to be necessary in the sense in which an efficiency expert may use the term. The High Court, in 1949, said that in the context of the 1936 Act the word “necessarily” is intended to mean no more than “clearly appropriate or adapted”.2 The relevant passage in the Court’s judgement referred to an earlier case.3 That was a case about the interpretation of an Act that created a regulation-making power. The Executive was empowered to make regulations necessary for the purpose of carrying out a legislative scheme. In such a context, it was clearly not intended that the validity of a regulation would depend upon showing that it was essential or unavoidable. It is sufficient to show that it is reasonably appropriate and adapted, bearing in mind that it is for the Executive, not the courts, to determine regulatory policy. Just as it is for Parliament, within the limits of the Constitution, to determine legislative policy, and for the Executive within the limits of an Act, to determine regulatory policy, so, within the limits of the tax Acts, it is for a taxpayer, not the Tax Office or the courts, to determine business policy.